JPMorgan Copper ETF, First in US, Gets Green Light

U.S. regulators have finally approved
JPMorgan Chase & Co's controversial plan to launch a
copper exchange-traded fund backed by actual stockpiles of the
metal, dealing a blow to end users who fear the product will
wreak havoc on prices.

U.S. regulators have finally approved
JPMorgan Chase & Co's controversial plan to launch a
copper exchange-traded fund backed by actual stockpiles of the
metal, dealing a blow to end users who fear the product will
wreak havoc on prices.

The U.S. Securities and Exchange Commission ruling ends a
two-year effort by the U.S. bank to win regulatory support for
its fund, which would effectively allow U.S. retail investors to
trade physical copper easily for the first time.

It is also a defeat for consumers of the metal, which is
used in plumbing and cooling systems. Since the fund will use
physical copper cathode as collateral against shares of the
fund, effectively removing a chunk of metal from the market,
users fear it will affect supplies and inflate prices.

U.S. Senator Carl Levin, a Democrat from Michigan, also
voiced his opposition to the plan. In July, Levin said the funds
would cause a boom-and-bust cycle in the copper market.

Giving its backing for the product, the commission said it
did not believe the fund would disrupt the flow of copper for
immediate delivery.

"The Commission does not believe that the listing and
trading of the shares is likely to disrupt the supply of copper
available for immediate delivery, which is what (the copper
fabricators) predict would increase the price of copper," it
said in its ruling dated Friday and posted on its website on
Monday.

Luvata, which makes heat-transfer products such a coil used
in air conditioning and refrigeration equipment, was one of five
physical copper users that joined forces to fight the proposal.

"It's a sad day for industrial users and consumers. The
outcome of the report is a nonsense," said Luvata's senior vice
president of sourcing Bob Kickham in an interview.

A spokeswoman for JPMorgan declined to comment.

The ruling will likely be seen as a benchmark for another
ETF, the iShares Copper Trust proposed by BlackRock Inc.
The SEC is due to rule on that fund by Dec. 24.

JURY'S OUT

A consortium of U.S. copper fabricators - SouthWire Co,
Encore Wire Corp, Luvata and AmRod - as well as Red Kite, a
large hedge fund and physical trader, have fought hard to get
the SEC to block the JPMorgan and BlackRock funds.

They say the removal of up to 183,000 tonnes of copper,
which would be used as collateral against shares in the funds,
would have a "devastating" effect on the market.

While that is only a tiny part of a 20-million-tonne annual
global market, fabricators worry that it accounts for the
majority of the metal available in exchange-bonded warehouses.

They argue there is not enough metal available outside the
exchange networks for immediate delivery to prevent a squeeze in
supply because it is tied up in long-term contracts.

The long-running dispute has divided traditional industrial
consumers, which use copper in everything from air-conditioning
units to cars, from banks looking to attract investors seeking
exposure to the potentially lucrative copper market.

JPMorgan and BlackRock say such fears are unfounded because
the funds would be miniscule compared with the global market.
Emphasis on exchange stocks as a measure of spot metal
availability has been overdone, they say.

The ETF would sell investors shares in a fund backed by
physical metal as collateral. JPMorgan and BlackRock have said
that would make it easier for smaller investors to get exposure
to copper prices, which have more than doubled in seven years,
lifted by demand from China, the world's biggest copper
consumer.

JPMorgan's fund would store LME brand-approved copper valued
at up to $499,761,150 - equivalent to about 62,000 tonnes based
on a copper price of $8,000 per tonne. BlackRock's iShares
Copper Trust would use up to 121,200 tonnes of copper as
guarantee against shares in its fund.

The two funds would equate to 70 percent of current copper
stocks in LME-bonded warehouses.

"If you have a quarter of a million tonnes of copper in LME
and an ETF that looks as though it will take a sum almost
equivalent to the entire LME stocks, you can't tell me it won't
have an effect," Luvata's Kickham said.

Some say concerns that the funds will remove a significant
chunk of metal from the market may be exaggerated given that a
similar fund in Britain has only had limited success.

ETF Securities launched a copper fund in October 2010, but
it has only amassed investments representing just about 1,950
tonnes of copper worth about $16 million at today's prices.

"The jury's out. We have to see how many people buy this ETF
and how much stock will be tied up. It just may flounder because
people would rather buy a commodity basket rather than be tied
into copper itself," said Ed Meir, metals analyst at brokerage
INTL FCStone.